Yahoo Finance Samsung shares tumble after warning of semiconductor surplus
Samsung Electronics shares took a hit on Friday following a report from Morgan Stanley that warned of an inventory surplus for the semiconductor market.
The investment bank downgraded its rating for the industry from in-line to cautious, despite chipmakers outperforming market expectations in recent years.
The semiconductor market plays a central role in the production of a number of goods affected by tariffs imposed in an escalating trade war between the US and China. Samsung’s semiconductors have applications in the automotive industry and servers to personal gadgets.
Samsung’s technology arm saw shares drop by 3.2pc to produce its worst performing day in more that two months, after a week that saw the launch of its new flagship Galaxy Note 9 smartphone.
“Cyclical indicators are flashing red,” Morgan Stanley analysts said in the report.
“Elevated inventory and stretched lead times leave no margin for error as any lead time adjustment or demand slowdown could drive a meaningful correction.”
The broker will monitor orders to gauge levels of demand, as a slowdown could see a drop in the price of semiconductors. The rating change means the firm expects the sector to underperform over the next 12 to 18 months.
Morgan Stanley also warned of a downtrend in global manufacturing in 2018 amid growing trade tensions between the US and other countries. The Philadelphia Semiconductor Index has increased 31pc over the last year with chipmakers Nvidia and AMD leading the growth until now.
Samsung announced a $22bn package on Wednesday that would see the company direct investment into artificial intelligence, 5G internet applications and its biopharmaceutical branch in an effort to find new income revenues.
It forms part of a wider effort from the South Korean technology firm to inject more money into its core semiconductor and display manufacturing businesses.
In a forecast from global research firm Gartner, the semiconductor market could stabilise with the launch of 5G services and applications in the automotive semiconductor market, but will see a downturn in the short-term.
“In our forecast, we estimate the growth of semiconductors in 2019 will slow down and even appear to decline in 2020. It is mainly due to the market saturation of premium smartphones and the memory market price drop,” said Gartner analyst Roger Sheng.
South Korea’s Kospi index was down 0.91pc.
